As a franchisor, this is what you must know about workers, employees and the gig economy

Provided they know the rules, franchisors have got the world to win by engaging with the gig economy

Many franchises rely on staff engaged on zero hours contracts or as self-employed contractors to supplement their permanent staff. The requirement for businesses to have flexibility to meet fluctuations in demand for their goods and services, together with the growth of new technologies has led to new opportunities in the labour market and the development of the gig economy.

The gig economy is typically used to describe freelancers who chose to do a series of short-term assignments rather than working on a permanent basis for one employer. Historically, self-employment tended to be reserved for professionals and skilled trades but the gig economy has made the possibility of freelancing available to anyone.

The clear benefit for both sides is flexibility. The employer is able to match the size of the workforce to the business’ current demands and the individual has complete flexibility to choose when, where, how and who they work for.

However, flexibility comes at a cost. For the employer, there is no guarantee that a person who works on Monday will be available on Tuesday. This makes maintaining continuity in the business difficult and it’s hard to invest in staff training and develop customer relations if personnel are constantly changing.

From the individual’s perspective, the price of flexibility is that they don’t enjoy the same rights and benefits as employees. This has led to a number of high profile cases where individuals have claimed that they are in fact workers not self-employed free-lancers. The distinction is important because workers do benefit from some rights and protections, though not as many as employees. Notably, workers are entitled to paid holiday, rest breaks and to be paid minimum wage, none of which apply to the self-employed.

Worker status

One of the difficulties is that there is no single definition of workers. Each case is determined on its individual facts and circumstances. This leads to uncertainty and in some cases, inconsistency in decisions. Further, whilst the concept of workers exists in employment law, it’s not recognised by HMRC. For tax purposes, an individual is either an employee or self-employed. For businesses, getting it wrong could prove a costly mistake.For example, in a recent case Uber drivers claimed they were workers not self-employed. The ride-hailing unicorn responded by arguing that it’s a technology platform that allows taxi drivers to promote their services and allows customers to recruit drivers, but that drivers are not Uber workers because Uber does not itself provide taxi services. The employment tribunal’s decision that the drivers are workers was upheld on appeal although further appeals are expected.

The specifics of the relationship between the driver and Uber were central to the tribunal’s decision. For example, if a driver refused to accept a job whilst signed in to the app, they would receive a warning and could even be temporarily suspended. This meant that drivers did not have a genuine opportunity to decline work, which in turn made it difficult for drivers to accept other jobs whilst signed in to Uber. In addition, drivers were not given customer details making it difficult for a driver to develop a relationship with the customer and to grow their own business. Finally, the driver was unable to agree their own terms with customers - although they could choose to accept a lower fare than the fare generated by the app).

Whilst there appears to be a trend towards finding self-employed staff are workers, each case does depend on its own facts. It is entirely possible that in a similar situation to the Uber case, drivers could be self-employed if for example, they were genuinely able to decline work and were not subject to the degree of control exercised by Uber.

In a similar case, Deliveroo drivers who were recruited to deliver take-away food to the customer were held to be self-employed not workers. A key factor in that case was that the driver had a genuine opportunity to accept or decline the work and could even use someone else to carry out the work for them, meaning they weren’t required to personally perform the service).

Zero hours

Zero hours contracts are another common feature in the gig economy, although this type of working is not new. These contracts have been criticised as enabling employers to have their cake and eat in in the sense that they keep the employee at the employer’s beck and call, but with no guarantee that any work will be provided. Exclusivity clauses in this type of contract are now outlawed, but they remain politically unpopular due to the fact that the individual doesn’t have a guaranteed income and doesn’t receive the same rights and benefits as full time, permanent employees.

The challenges presented by the gig economy have resulted in a number of consultations, reviews and inquires although to date there have been no concrete proposals for reform. This is perhaps a reflection that as with any innovation, the gig economy offers both opportunities and challenges. There is no one size fits all and no easy solution that will work for everyone. In the meantime, businesses who engage staff on a self-employed basis should seek legal advice to ensure they are genuinely operating a self-employment arrangement and to avoid the risk of worker status claims.

About the Author

After more than a decade advising other business owners, Legg has recently fulfilled a long held ambition and become one herself. Now the founder, director and CEO of Komerse, a legal practice specialising in commercial law and franchising, Legg is clearly practising what she preaches.